The Banking Hypocrisy

Bank owned(foreclosed upon) properties still make up a major portion of listings in Las Vegas and other hard hit areas such as Phoenix, Miami, etc. Some of these bank owned properties may have been on the market for months or even years before being sold. In Las Vegas many were never even lived in. So, from a logical stand point, America’s banks should be eager to get these properties off the market. After all, these properties are accruing more debt for the bank. HOA fees, property taxes and utility bills will continue to pile up and are necessary to be paid in full at closing by the bank.

A client of mine came to me with their own conventional financing in place through let’s say BANK A. My client has perfect credit and 30% to put down. We got a full price offer accepted on a discounted luxury property in Lake Las Vegas now selling for just under $200,000. The HOA fees for this V Lake Las Vegas townhome are approximately $900 per month, which makes them very hard to sell, since so few people are willing to pay more than triple the normal association fees in Las Vegas. Our client was happy to do it, and as luck would have it, BANK A was also the owner of the foreclosed property. What a win/win situation! BANK A would no longer be in possession of a property slowly depreciating vacantly in the Nevada desert, and would not be accruing $900 per month in unused association fees, since the new owner would take over the fees at closing. Then BANK A decided not to sell to it’s own client. Can’t take the risk because not enough people actually live there. Too many investors, not enough people in primary residence.

So here is the hypocrisy. The bank is willing to sell the property but will not finance it, even with a 30% down payment and guarantee that the buyer is going to live in it. Banks turning down offers is nothing new. Last month the Denver ABC News affiliate ran a story about a veteran Joel Brown getting his offers turned down because he was trying to use his VA loan. What it really boils down to is blatant misuse of funds. I thought that banks were bailed out in large part to get our economy moving yet it is harder than ever for even the best qualified buyers to borrow from their own banks! Fire sales are going on for investors with cash. Banks would rather wait and sell the property to an investor for cash than finance it. All of the major banks that were caught holding worthless mortgages got more than their fair share of tarp funds to tide them over.

So investors come along, scoop up heavily discounted properties for cash then turn around and resell them for a profit….to the home buyers that couldn’t originally get a loan on them in the first place. There is even a bank that allows these flip properties to be sold before the 60 day minimum resale rule on FHA loans. Let’s call that one Bank W. There are rules regarding this of course, but with over a million distressed properties on the market who has time to make sure anyone is following the rules?

Comments

It is quite interesting to learn about this new banking hypocrisy. Banks are know for their hypocrisy. They are the most unfaithful public institutions around the world. You may or may not believe, but, it is 100% true that these are responsible for the poverty in third world countries. It is the same truth which is responsible for much of the individual debt ailments.

It sure seems like Banks are now in fact bailing themselves... out of the mortgage industry that is. Banks are not making it easy for folks to do business with them in residential lending/purchase. They really seem to be easing their way into other probably safer arenas and resisting residential real estate loans.

As an Aussie I'm not sure what HOA fees are but the one thing I do know is that the banks here have always been pretty strict when it comes to giving out loans. Even if they have 30% of the value they would still grill you before approving the money. I remember when the wife and I went for our loan they virtually sat down with us and mapped out a budget just to see if we could afford the repayments. They even factored in the possibility of the wife getting pregnant.

I'm not sure if they are that strict today, but I have a feeling that they are and I see that as a good thing because the last thing anybody would want would be for their banking system to flounder because of undue care.

In Southern California we have seen a lot of real estate savvy investors picking up REO properties and flipping them to first time FHA qualifying home buyers. While it turns a huge profit for investors and often leaves FHA buyers overpaying, it is just another inefficiency in the market that is being taken advantage of...

On the commercial real estate level Debtx and other REO listing companies have tried to make it more competitive for people to bid on these assets, but quite frankly banks only want to deal with serious and seasoned real estate experts to ensure that properties are disposed of in a timely and efficient manner.